Member Sign In

You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating indiv idual securities.

If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.

U.S. President Trump has threatened to impose further tariffs on Chinese goods, while Beijing warned it would retaliate. This has heightened the trade spat between the two of the world’s largest economies. Investors, naturally, have turned nervous as earnings of companies could be at risk in the event of a global trade war.

But there are some companies that might benefit. Among these are producers of goods that do limited business in China, have solid growth narratives and their promising outlook remains unfazed by the change in tariffs. Thus, investing in such winners at times of a trade war will not be a bad proposition.

Trump Ups the Stake in Trade War

The chances of a trade clash between Washington and Beijing intensified after Trump instructed the U.S. Trade Representative’s office to figure out $200 billion in imports from China for additional tariffs of 10%. He added that the United States may impose tariffs on another $200 billion provided the Asian nation retaliates.

Last week, Trump threatened to impose a 25% tariff on $50 billion Chinese imports. The tariffs will be passed in two phases. More than 800 Chinese exports, worth $34 billion, will be subject to tariffs beginning in July and another 280 or so will go through a public comment period and take effect later.

Trump said that “the United States will no longer be taken advantage of on trade by China and other countries in the world” and that the U.S. “will continue using all available tools to create a better and fairer trading system for all Americans.”

Trade wars are headwinds for companies as these erode profit margins and affect the overall economy. Thus, this rising tension has compelled top fund managers to look for companies that can emerge as winners. These companies have a strong domestic business and are unperturbed by import tariffs or in other words have a dominant market position.

George Maris, a portfolio manager of the $2.2 billion Janus Henderson Global Select fund has identified one such company. That is none other than Chinese e-commerce giant Alibaba Group, primarily because of its domestic exposure.

The company’s expected earnings growth rate for the current year is 26.7% compared with the Internet - Commerce industry’s estimated rally of 12.3%. The company has also outperformed the industry in the last year (+50.7% compared with +49.1%).

Google, Facebook & Axon Enterprise Undeterred by a Trade War

Companies that have long-term growth narrative will also not be affected by a trade war. Notable, among them are Alphabet, Facebook and Axon Enterprise, Inc. Google’s growth is dependent on an uptick in digital advertising, since the search engine controls more than 40% of the U.S. digital ad market. Google’s focus on smart home technology, cloud data centers and automated driving drives the company’s earnings. All these areas are unlikely to be affected by a trade war.

Similarly, Facebook’s growth is mostly in digital advertising. Facebook controls 20% of the U.S. digital ad market, while Instagram controls another 5%. Needless to say that digital advertising industry is hardly affected by the implementation of tariffs.

Axon Enterprise sells an array of digital solutions including cloud data storage systems and mobile video apps to law enforcement agencies throughout the world. Such agencies are in desperate need of a technology makeover, which gives the stock a solid growth narrative.

In the wake of Trump’s tariff announcement, investors seem to be shifting into small-cap stocks. And why so? This is because such stocks tend to have higher proportion of domestic sales compared to large-caps. But, in reality, the difference isn’t much. Per data from FactSet Research, small-caps stocks in the Russell 2000 index derive 20.6% of their revenues from outside the United States, while stocks from the broader S&P 500 derive 30.3%.

Goldman stated that CSX Corporation, CVS Health Corp, Dollar General Corp, Public Storage, Verizon Communications Inc and Wells Fargo derive 100% of their sales from the United States. Intuit Inc. is another company that derives 95% of its sales from the country, Goldman added. Hence, it’s quite natural that these companies stand to gain the most as trade war escalates. After all, their profits aren’t getting eroded due to limited exposure to foreign markets.

5 Solid Choices

Thus, investing in the aforesaid stocks as the specter of a global trade war looms seems prudent. We have selected five stocks that carry a Zacks Rank #1 (Strong Buy) or #2 (Buy).

Axon Enterprise develops, manufactures, and sells conducted electrical weapons. The stock, currently, has a Zacks Rank #1. In the last 60 days, six earnings estimates moved north, while none moved south for the current year. The Zacks Consensus Estimate for earnings soared 92.7% in the same period. The company’s expected earnings growth rate for the current year is 75.6% compared with the Security and Safety Services industry’s estimated rally of 16.4%.

Intuit Inc. provides financial management and compliance products and services for small businesses, consumers, self-employed, and accounting professionals. The stock currently has a Zacks Rank #2. In the last 60 days, nine earnings estimates moved north, while none moved south for the current year. The Zacks Consensus Estimate for earnings increased 3.4% in the same period. The company’s expected earnings growth rate for the current year is 25.4% compared with the Computer - Softwares industry’s estimated rally of 12.6%.

L3 Technologies provides aerospace systems, communication, electronic, and sensor systems used on military, homeland security, and commercial platforms. The stock has a Zacks Rank #2. In the last 60 days, six earnings estimates moved north, while none moved south for the current year. The Zacks Consensus Estimate for earnings advanced 2.2% in the same period. The company’s expected earnings growth rate for the current year is 14.2% compared with the Electronics - Military industry’s estimated rally of 9.6%. You can see the complete list of today’s Zacks #1 Rank stocks here.

CSX Corporation provides rail-based transportation services. The stock currently has a Zacks Rank #2. In the last 60 days, two earnings estimates moved north, while none moved south for the current year. The Zacks Consensus Estimate for earnings increased 0.9% in the same period. The company’s expected earnings growth rate for the current year is 42.2% compared with the Transportation - Rail industry’s estimated rally of 22%.

Roper Technologies designs and develops software, and engineered products and solutions. The stock currently has a Zacks Rank #2. In the last 60 days, seven earnings estimates moved north, while none moved south for the current year. The Zacks Consensus Estimate for earnings advanced 1.6% in the same period. The company’s expected earnings growth rate for the current quarter is 20.5% compared with the Manufacturing - General Industrial industry’s estimated rally of 5.8%.

Looking for Stocks with Skyrocketing Upside?

Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.

Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.

At the center of everything we do is a strong commitment to independent research and sharing its profitable discoveries with investors. This dedication to giving investors a trading advantage led to the creation of our proven Zacks Rank stock-rating system. Since 1988 it has more than doubled the S&P 500 with an average gain of +25.32% per year. These returns cover a period from January 1, 1988 through November 5, 2018. Zacks Rank stock-rating system returns are computed monthly based on the beginning of the month and end of the month Zacks Rank stock prices plus any dividends received during that particular month. A simple, equally-weighted average return of all Zacks Rank stocks is calculated to determine the monthly return. The monthly returns are then compounded to arrive at the annual return. Only Zacks Rank stocks included in Zacks hypothetical portfolios at the beginning of each month are included in the return calculations. Zacks Ranks stocks can, and often do, change throughout the month. Certain Zacks Rank stocks for which no month-end price was available, pricing information was not collected, or for certain other reasons have been excluded from these return calculations.

Visit performance for information about the performance numbers displayed above.

We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms and Conditions of Service.